Report summary: Review of infrastructure funding

Abstract

This rapid desk based study was undertaken to provide a summary of qualitative and quantitative analyses of DFID’s work in the infrastructure sector in comparison with other established donors, and to present a global overview of bilateral and multilateral agencies’ investment strategies in the infrastructure sector. This report summarises data from the study completed. Aspirations for sustainable economic and social development are fuelling the demand for infrastructure across developing countries. Availability and reliability of infrastructure services is critical to economic growth and the establishment of firms that are competitive in domestic and international markets. For example, better transport infrastructure improves access to critical services like healthcare, education and provides access to markets for agricultural and industrial producers. Moreover, in recent time, public spending on infrastructure has proven to be a powerful countercyclical instrument to withstand recessions as shown during the 2008 global crisis. Despite the wide range of benefits from investing in infrastructure, the sector remains severely underfunded in developing countries, especially those classified by the OECD as least developed or fragile states. The current infrastructure gap is estimated at $1 trillion in low- and middle-income countries and the demand for infrastructure continues to increase as growth and economic development requires expansion of physical infrastructure and services to facilitate increased output and absorb more people (Bhattacharya et al. 2012). At present, approximately two thirds of infrastructure investment across emerging markets and low-income countries is financed by domestic government budgets, 20-30% by the private sector and the remaining 8-12% by ODA, mainly from Multilateral Development Banks (Bhattacharya et al. 2012). Aid continues to play an important role in providing capital finance for sectors for which private finance cannot be mobilised, and in mobilising other sources of finance from both the private and public sectors. This report has been produced by IMC Worldwide for Evidence on Demand with the assistance of the UK Department for International Development (DFID) contracted through the Climate, Environment, Infrastructure and Livelihoods Professional Evidence and Applied Knowledge Services (CEIL PEAKS) programme, jointly managed by HTSPE Limited and IMC Worldwide Limited